Expenditure incurred on food and beverages at the guest houses maintained by the assessee; the case of the Revenue is that there is no evidence to show that the impugned expenditure was incurred on the employees in connection with their stay during official visits whereas assessee company submits that the impugned expenditure was incurred for the purpose of business, since company’s employees stayed in the inspection/guest house near factories while carrying out their official duties and during such period food and beverages were provided to them and such expenditure is allowable as deduction under Explanation 2 to Section 37 (2) of the Act.

IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES “E” : MUMBAI

BEFORE SHRI D. MANMOHAN, HON’BLE VICE PRESIDENT AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER

1. These appeals, filed at the instance of the Revenue, involve one common issue and hence we proceed to dispose of these appeals by a combined order, for the sake of convenience.

2. In respect of the assessment years 1985- 86, 1987- 88 and 1989- 90 the only ground urged in the appeals filed by the Revenue is with regard to action of the learned CIT(A) in allowing expenditure incurred on food and beverages at the guest houses maintained by the assessee; the case of the Revenue is that there is no evidence to show that the impugned expenditure was incurred on the employees in connection with their stay during official visits whereas assessee company submits that the impugned expenditure was incurred for the purpose of business, since company’s employees stayed in the inspection/ guest house near factories while carrying out their official duties and during such period food and beverages were provided to them and such expenditure is allowable as deduction under Explanation 2 to Section 37 (2) of the Act, at it stood at the relevant point of time.

3. However, in respect of the assessment year 1986- 87 Order of the learned CIT(A) was challenged by the Revenue vis-à-vis allow ability of expenditure incurred on food and beverages at the guest house as well as expenditure incurred on beautification of Horniman Circle. Learned Senior Counsel relied upon the decision of ITAT, ‘A’ Bench, Mumbai (ITA. No. 3222/B/92 dated 25-1-2002) and contended that contribution of assessee towards beautification of Horniman Circle is a revenue expenditure incurred for the purpose of business. As regards expenditure for food and beverages, it was contended that judicial notice has to be taken with regard to utilisation of guest/inspection houses by employees in the course of their employment.

4. We shall fist deal with the issue of claim of deduction referable to expenditure incurred on food and beverages which is common in all these years. In respect of the assessment year 1985-86 originally assessee appears to have claimed deduction under section 37 of the Act which was disallowed by the Assessing Officer by invoking the provisions of section 37 (4) of the Act which was confirmed by the learned CIT(A) and on an appeal filed by the assessee, the ITAT ‘C’ Bench, Mumbai (ITA. No. 1668/Bom/92 dated 26th June, 2006) observed that expenditure relating to maintenance of guest house is hit by the provisions of section 37(4) and (5) of the Act. At this juncture, assessee appears to have raised an alternative plea that certain expenditure was incurred on supply of food and beverages to the staff members who stayed at the guest house and thus it was an expenditure incurred for business purpose. The Tribunal observed that so long as an expenditure is proved to have incurred on food and beverages and employees are shown to have stayed in the guest house to carry on their duties, the same would fall within the exception provided under section 37 (2) of the Act. Having regard to the plea of the assessee the Tribunal restored this issue to the file of the Assessing Officer with a specific direction which reads as under:

“We restore this issue to the file of the Assessing Officer to be examine in the light of provisions of section 37 (2) of the I.T. Act and if the assessee succeeds in proving that these expenses on food and beverages on its employees were incurred at the work place, it may be allowed as per Explanation 2 to section 37 (2) of the Act.”

5. Similarly, for the assessment years 1986-87 and 1987-88, vide Order dated 24-7-2006 ITAT ‘F’ Bench, Mumbai (ITA. No. 1669 & 1670/Bom./92) set aside the issue to the file of the Assessing Officer with an identical direction. Even for the assessment year 1989-90, the issue with regard to allow ability of expenditure on food and beverages was set aside to the file of the Assessing Officer by the ITAT, ‘C’ Bench, Mumbai (ITA. No. 1787/Bom./95) dated 26-6-2006).

6. Since there was a specific direction by the Appellate Tribunal, the Assessing Officer, in order to give effect to the ITAT’s direction, called upon the assessee to furnish evidence to prove that the expenditure was incurred on food and beverages on the employees who stayed in the inspection/ guest house for business purpose.

7. Except reiterating its contention that employees stayed at the guest house/inspection house during their official visits, no evidence whatsoever was furnished to prove that employees had in fact stayed in the guest house and impugned expenditure was not incurred on outsiders. In the absence of any evidence, Assessing Officer disallowed the claim of deduction.

8. Aggrieved, assessee preferred appeals before the first appellate authority. Learned CIT(A) chose to accept the claim of the assessee-company with regard to deduction of expenditure and in this regard observed, in it’s order for assessment year 1985- 86, as under (dis allowance was set aside for the other years also on the strength of identical observations) :

5.5. “During the appellate proceedings the appellant has reiterated the same facts that the Company has staff inspection houses near factories where employees stay during their official visits for the purpose of business. The food and beverages have been provided to the employees who stayed in the staff inspection houses during their official visits. The A.O. has not appreciated the facts. The A.O. has also taken into account the direction of the Honourable ITAT while deciding the issue. He simply disallowed the claim for want of supporting evidence.

5.6. I have gone through the above submissions carefully and reasoning given by the Assessing Officer. I find that the Honourable ITAT has given specific direction on this issue and in my opinion the appellant Company fulfils the requirement for allowing its claim in view of that directions. Therefore, following the directions of the Honourable ITAT and keeping in view the provisions of law as well as the facts related to the issue, I hold that the claim of the appellant is allowable. Hence, the same is allowed. This ground of appeal is decided in favour of the appellant.”

9. Aggrieved, Revenue is in appeal before us. Learned DR submitted that the Assessing Officer, while giving effect to the Order of the Appellate Tribunal, is bound by the specific directions of the superior Forum and such directions cannot be diluted/disobeyed.

10. In the instant case, the Bench specifically directed the Assessing Officer to examine the issue in the light of provisions of section 37 (2) and further clarified that the impugned expenditure is allowable only upon the condition that the assessee has to prove that the expenditure was incurred on food and beverages on its employees at the work place. In other words, the preliminary burden is placed upon the assessee to prove that the employees had visited the guest house/inspection bungalows to carry on their work and while utilising it as work place, food and beverages were supplied to them. Assessee company did not choose to prefer appeals against the Orders passed by the Appellate Tribunal. Such being the case it ought to have followed the mandate of furnishing the evidence, either in the form of showing from the inspection bungalow records or otherwise, that specified number of workers were assigned duty at the relevant place and in discharge of their duties they have utilised the guest house/ inspection bungalow as their work place and food and beverages were supplied to them. Admittedly, no such evidence was furnished before the Assessing Officer as well as the CIT(A). The plea of the learned Counsel, appearing on behalf of the assessee before us, is that it has to be normally assumed that guest house/ inspection bungalows are at a stone’s throw distance from the work place (within the factory premises or adjacent to factory premises) and thus it can be considered as an extended work place of the employees. We may observe here that every company would maintain certain records at the guest houses with regard to number of guests or staff who have utilised the guest house facilities, as otherwise it may lead to wrong use of a guest house; such records ought to have been produced before the Assessing Officer or some other inferential material could have been furnished to prove that employees have treated guest houses as ‘work place’ and food and beverages were supplied to them in the guest house while they were carrying-out their duties in such work place. Strangely, despite lack of evidence, learned CIT(A) assumed that the Tribunal did not direct the Assessing Officer to furnish evidence and based upon a bald plea of the assessee that it had incurred expenditure on food and beverages provided to the employees at the guest house, Assessing Officer was directed to allow the claim of deduction.

11. Having heard the rival submissions on this issue, we are of the view that the learned CIT(A) was not justified in accepting the plea of the assessee, without any evidence on record to prove that the employees had in fact utilised the guest house/ inspection house as their work place. We therefore, set aside the Order of the learned CIT(A) on this issue. In the result, the only ground urged in its appeals for the assessment years 1985-86, 1987-1988 and 1989-1990 is decided in favour of the Revenue. This also dispose of ground No.1 in the appeal filed for the assessment year 1986-1987 (in favour of Revenue).

12. Ground No.2 for the assessment year 1986- 87 reads as under :

“The learned CIT(A) has erred in allowing the expenses of Rs. 10,00,000/- disallowed by the Assessing Officer on account of expenses on beautification of Horniman Circle, without appreciating the fact that assessee had failed to submit any details in this regard at any time i.e. either at the time of original assessment or even after the assessment was made with the direction of the Honourable ITAT’s order”.

13. As could be noticed from the Order of the ITAT, ‘F’ Bench, Mumbai (supra), the claim was disallowed on the ground that assessee failed to prove that the expenditure incurred is in connection with the assessee’s business and no details regarding the expenditure were filed. The Appellate Tribunal restored the issue to the file of the Assessing Officer by observing as under :

“Undoubtedly, it is for the assessee to prove that the said expenditure is in the nature of advertising and not for the purpose of social welfare. The mere fact that the assessee has given its share of contribution along with other group companies does not by itself make the expenditure as allowable. The Assessing Officer shall give opportunity to the assessee which is required to file the necessary details in order to substantiate the said claim.”

14. Despite an opportunity given by the Assessing Officer, while giving effect to the Order of the ITAT, the assessee has not produced any evidence/explanation in respect of beautification expenses of Horniman Circle and thus the claim of deduction was rejected by the Assessing Officer. However, on an appeal filed by the assessee, the learned CIT(A) relied upon the decision of the ITAT, Mumbai Bench in the case of Tata Iron & Steel Co. ITA. No. 3222/Bom./92 to hold that contribution made to Tata Services Ltd. as share of expenses for maintenance of Horniman Circle garden was wholly and exclusively for the purpose of business.

15. Aggrieved, Revenue is in appeal before us. Learned DR submitted that merely because the assessee is sharing the expenditure with the other group companies, it can not constitute sufficient evidence to prove that the expenditure was incurred on advertisement. Despite a specific direction by the Bench that necessary details have to be furnished by the assessee, the learned CIT(A) erred in accepting the plea of the assessee, without any evidence on record to prove that maintenance of Horniman Circle garden help the advertisement campaign of the assessee company.

16. On the other hand, learned Counsel strongly relied upon the Order of the ITAT referred to by the learned CIT(A).

17. We have carefully considered the rival submissions and perused the record. In the light of specific directions of the Bench, while giving effect to the Order of the ITAT the Assessing Officer in our opinion, was justified in calling upon the assessee to furnish evidence. Even at that stage the assessee merely reiterated its contention that it was contributing its share. In the absence of any specific and direct evidence, to show that contributing its share would help the assessees company’s advertisement campaign, learned CIT(A) was not justified in accepting the claim of deduction. Under these circumstances, we set aside the Order of the learned CIT(A) and uphold the plea of the Revenue.

18. In the result, appeals filed by the Revenue are allowed.

Order pronounced in the open Court, on this the 30th day of June, 2010.